17th Mar 2008 07:01
TT electronics PLC17 March 2008 TTG.L TT electronics is a world leader in sensor and electronic component technologyand announces its preliminary results for the year ended 31 December 2007. Further earnings growth and dividend held KEY POINTS • Group revenue from continuing activities of £544.9 million (2006: £539.4 million). • Operating profit from continuing activities improved to £37.7 million (2006: £36.5 million before exceptional gain). • Earnings per share from continuing operations increased by 10 per cent to 15.5p (2006: 14.1p before exceptional gain). • Pension fund deficit reduced to £17.4 million (2006: £72.6 million). • The Board is recommending a maintained final dividend of 6.36p per share bringing the total for the year to 10.05p (2006: 10.05p). • Successful exit from low margin, commodity cables operation. • Employees in low cost manufacturing operations increased to 42 per cent of workforce (2006: 39 per cent). • Strong cash generation and a robust balance sheet with 41 per cent gearing (2006: 45 per cent) provides a good platform for the future. Neil Rodgers, Chief Executive, said today: "TT electronics has reported further growth in 2007, despite deterioratingmarket conditions in North America and the weakness of the US dollar. "Our sensor business continues to perform well and approval for the manufactureof accelerator pedals incorporating our innovative Autopad(R) sensor technologyhas been received. The electronic manufacturing services business has deliveredsignificant growth in profit and, following the acquisition of TT Apsco, Inc in2006, has established a truly global footprint. "TT electronics' strategy is to invest in leading edge technologies and focus onthe development of specialist new products to enhance both our competitiveadvantage and margins. "While the challenges in the broader economic environment cause us to take acautious view for 2008, we believe that we are well positioned in our keymarkets." Enquiries: TT electronics plc Tel: 01932 841310Neil Rodgers, Chief Executive Biddicks Tel: 020 7448 1000Zoe Biddick Chairman's statement TT electronics delivered operating profits of £37.7 million compared with £36.5million before exceptional profit in the previous year, a 3 per centimprovement. Turnover of continuing operations was £544.9 million compared to£539.4 million in the previous year. Finance costs (net) were £4.4 million(2006: £5.3 million). These comprise £4.5 million of bank and finance interest(2006: £3.5 million) and £0.1 million income relating to pension fund accounting(2006: £1.8 million cost). Profit before tax from continuing operations was£33.3 million compared with £31.2 million before exceptional profit in 2006, anincrease of 7 per cent. Taxation charge of £9.3 million (2006: £12.0 million)was an effective rate of 28 per cent (2006: 30 per cent). Basic earnings per share from continuing operations before exceptional itemswere 15.5p compared with 14.1p in 2006, an increase of 10 per cent. The sale of our commodity cable business of AEI Cables Limited was completed on3 September 2007 as I reported in my half year statement. The cash proceeds ofsale, following settlement of the completion accounts, were £10.8 million plus adeferred consideration of £0.9 million. This resulted in a final discountincluding costs of £12.3 million against the carrying value of assets sold. Wehave retained ownership of the freehold land at the AEI Cables site, which isleased at a market rate, and we expect to produce a profit on the sale of thisland in due course. As a result of the sale of the AEI Cables business, the remaining Electricalsector businesses have been combined into the newly designated 'Secure power andindustrial sector'. The analysis of the other sectors is unchanged. During the year the group incurred costs of the transfer of manufacturing fromthe USA and Europe to low labour cost areas, in particular Malaysia and China.Further costs will be incurred in 2008 when we transfer the next tranches of themanufacture of electronic systems, sensors and components to our facilities inChina, India and Mexico. These moves are essential to remain cost competitiveand improve future operating margins. At 31 December 2007, the group's net indebtedness was £75.0 million comparedwith £71.0 million in the previous year resulting in gearing of 41 per cent(2006: 45 per cent). The inflow of cash from the sale of AEI Cables has beenoffset by further additional payments into the group's pension scheme amountingto £15.7 million. The group is utilising 46 per cent of its total borrowingfacilities and 43 per cent of these facilities are in the form of a medium termfacility with over three years before renewal. I am pleased to report that, following the significant additional payments intothe pension scheme, a higher discount rate and improved returns from the assetsheld, the deficit on the pension funds has been reduced to £17.4 millioncompared with £72.6 million at the previous year end. The pension schemes arenow 94 per cent funded on an IAS 19 basis (2006: 79 per cent). The following appointment to the Board has been made since my half yearstatement: in November 2007, Sean Watson, a senior partner in CMS CameronMcKenna LLP was invited to join the Board as an independent non-executiveDirector. Sean Watson's knowledge of corporate law will be of great benefit tothe Board, especially in the light of the latest Companies Act. On 1 August2008, Shatish Dasani will join the Board as Finance Director replacing RoderickWeaver who will be retiring on the same day. Roderick has been with the groupfor 23 years, 12 of which were as Finance Director. All those who know him areaware of the great contribution he has made. I would like to give my thanks to all the employees of TT electronics for theirefforts and contribution to the group's performance during the past year. The Board recommends a final dividend of 6.36p per share. This is the same finaldividend as in the previous year, bringing the total dividend for the year to10.05p. The final dividend will be paid on 23 May 2008 to shareholders on theregister on 16 May 2008. Whilst current trading is expected to remain overall similar to 2007, thefurther reorganisation of operations, difficulties in the credit markets andconcerns as to the effect on the global economy causes the Board to take acautious view for the current year. John W NewmanExecutive Chairman14 March 2008 Business review TT electronics is a technology based group with a leading position in sensors,electronic components and electronic manufacturing services in global markets. The group's strategy is to continue to invest in leading edge technologies andto focus on product development for an expanding global customer base. This willenable TT electronics to move up the value chain by producing more specialist,high level assemblies thereby growing competitive advantage and operatingmargins. The further transfer of manufacturing to lower cost economies, whereappropriate, and other cost reduction plans will minimise the effect of pricecompetition. The group's comprehensive global manufacturing capability is astrong platform to service both specialist western based markets and emergingmarkets. The disposal of the business of AEI Cables Limited resulted in the powertransmission product sector largely being discontinued. The remaining powertransmission businesses are now included in the power systems product groupingwhich has been renamed 'Secure power and industrial'. There are no other changesto the analysis of product grouping. The summary of key financial performance indicators and a review of the group'soverall performance are detailed as follows: Overview of group performance 2007 2006 £million £million----------------------------------------- -------- -------RevenueContinuing operationssensors and electronic systems 182.3 184.8electronic components 131.2 139.9electronic manufacturing services 92.2 72.1secure power and industrial 139.2 142.6----------------------------------------- -------- ------- 544.9 539.4----------------------------------------- -------- -------Operating profit(1)Continuing operationssensors and electronic systems 10.0 11.6electronic components 10.0 11.4electronic manufacturing services 4.1 1.3secure power and industrial 13.6 12.2----------------------------------------- -------- ------- 37.7 36.5----------------------------------------- -------- -------Cash generated from operations 42.9 32.1Capital employed 277.0 255.2Return on capital employed 14% 14%Number of employees 7,546 7,599Employees in low cost economies 42% 39%----------------------------------------- -------- ------- (1) Throughout this review operating profit for 2006 is stated before theexceptional gain. There were no exceptional items in 2007. TT electronics has generated an operating profit on continuing activities of£37.7 million, which represents a growth of 3 per cent over the prior year'sprofit of £36.5 million. This growth has been achieved in market conditions which rapidly became moredifficult during the final months of 2007. The global credit crisis, theweakness of the US dollar and a general softness within the USA markets combinedto make the final months of 2007 challenging. The effect of currency movementson the translation of revenue and operating profit was a reduction of £19.1million and £1.4 million respectively. This was predominantly as a result of theexchange rate of the US dollar against sterling weakening from an average rateof 1.84 in 2006 to 2.00 for 2007. The integration of TT Apsco Inc, which was acquired in November 2006, into theelectronic manufacturing services sector has now been completed. The legal formalities for the establishment of Padmini TT, the new joint venturein India serving the automotive market, have been completed and contracts tosupply automotive sensor products are now being won. The completion of the sale of the business of AEI Cables Limited was a majorstep forward in the withdrawal from non-core commodity products. This is in linewith the strategy to concentrate on more specialist products with highermargins. The demand for the group's products in world markets has varied dependent uponthe sector and geographical market serviced. The European and Far East markets have remained strong but the well publiciseddifficulties of the North American automotive market have had an adverse effecton profit. The move of manufacturing to lower cost economies continues tobenefit the group and growth in domestic sales in emerging markets is beingtargeted. The group now has 42 per cent of its employees in low cost economiesand the China based operations continue to grow with the establishment offactories for the manufacture of automotive sensors and electronic systems,resistors, electrical fusegear and interconnection systems. Since 2005 thefactory space occupied in China has expanded from 2,500 sq. metres to over15,000 sq. metres. Work on acquisitions has continued throughout the year but no suitable prospectsat an acceptable price have been identified. TT electronics remains cautious ofopportunities requiring prices based on high multiples of profits and it ispleasing that the global credit crisis has reduced price expectations ofbusiness sellers and may provide trade purchasers such as ourselves with greateropportunity. Consequently activity on the search for suitable acquisitions hasbeen increased. We remain committed to maintaining the pace of new product development,particularly in our sensor and electronic component sectors. TT electronics hasmany exciting new technologies and innovative new products, and it is ourintention to drive for growth from these and to supplement them with suitableacquisitions to accelerate organic growth of the group. During 2007 the grouppurchased the patents to expand the use of Autopad(R) for fuel level sensing andDigital Angular Position Sensing for steering applications. Sensors and electronic systems 2007 2006 £million £million----------------------------------------- -------- -------Revenue 182.3 184.8Operating profit 10.0 11.6Capital employed 105.1 87.4----------------------------------------- -------- -------Return on capital employed 10% 13%----------------------------------------- -------- -------Number of employees 2,429 2,601----------------------------------------- -------- ------- TT electronics' leading edge automotive sensor technologies include productssuch as electronic accelerator pedals, which are single sourced on a range ofGerman premium vehicles, as well as engine and wheel speed, temperature andpressure sensors and chassis height sensors used for load levelling andelectronic stability control which is increasingly popular in modern vehicles.An average vehicle may incorporate around fifty electronic sensors and the TTelectronics' product range covers up to 20 per cent of these applications. Theoptoelectronic sensor product range mainly addresses non-automotive markets forapplications within office, industrial and banking equipment, a market which isgrowing in line with increased automation across the world. The electronic systems manufactured are largely destined for the North Americanautomotive industry. Increasing competition from the Far East, combined withlower volumes and a weak US dollar, have combined to make this a low marginactivity. We initiated plans during 2007 to cease manufacture in our NorthAmerican facility and by the end of 2008 this factory will be used for the saleand service of electronic systems and the manufacture of interconnectionsystems. Development of the Autopad(R) inductive sensor technology suffered with initialdelays to the completion of the Application Specific Integrated Circuit ('ASIC')necessary for it to be effective in volume automotive applications. An ASICdevelopment programme can take up to three years to complete. This has caused amajor customer for this technology to defer the start of production from autumn2007 to autumn 2008. However, this development is now complete and customerapproval for production has been given. Manufacture of accelerator pedals willcommence in quarter two 2008 for production launch on vehicles in quarter four2008. Autopad(R) is an innovative technology with excellent growth potential ina range of automotive applications. The optoelectronic non-automotive sensor range continues to be developed and theproduct range of visible LEDs has been relaunched. There are many exciting newproducts for development and launch during 2008, such as ultra violet sensors,optocouplers and encoders. Growth in the Far East has levelled off following ourvery successful year in 2006. However, we remain confident in the future successof the product line in global markets. There have been significant investments made in this sector including theextension of one of the German factories to provide further capacity for newproducts and investment in plant for the manufacture of the Autopad(R) range ofsensors planned for launch in 2008. The revenue in this sector has declined in 2007 due to the completion of anumber of automotive programmes. However the Autopad(R) technology, the combinedgrowth of automotive temperature and pressure products and the futuredevelopment of the optoelectronic product range provide an excellent foundationfor growth in 2009 and beyond. Electronic components 2007 2006 £million £million----------------------------------------- -------- -------Revenue 131.2 139.9Operating profit 10.0 11.4Capital employed 99.4 95.9----------------------------------------- -------- -------Return on capital employed 10% 12%----------------------------------------- -------- -------Number of employees 2,707 2,598----------------------------------------- -------- ------- TT electronics specialises in the manufacture of a wide range of resistiveproducts for the defence, aerospace, industrial and automotive markets. Thegroup's global sales channels provide access to both western based markets andgrowing emerging markets in China and India. The group's product range targetsspecialist, high margin markets; products are custom designed for our customers'applications by a global network of experienced application sales engineers whosupport the customers' design centres. Within this sector are microcircuit operations which specialise in manufacturingcustom designed microcircuits for a range of applications in the defence,aerospace, automotive and premium industrial markets. These products are complexto manufacture and are designed to provide extreme reliability, often operatingin harsh environments. Under development for the German automotive industry isan exciting new range of solid state lighting modules for the control of vehicledaylight running lamps and direction indicator units. Production is planned tostart during 2008. In February 2008 the group's UK resistor manufacturing operation announced areduction in its workforce in line with the transfer of manufacturing of lowmargin products to lower cost economies. The UK manufacturing operations and theEuropean sales offices have been combined into a single reporting entity inorder to facilitate greater market penetration. There have been two significant investments in the component sector during 2007.Both of these expansions have been completed on time and as planned. Theexpansion of the Austrian microcircuit factory has been completed; this isneeded for the introduction of the new business won recently. Additionalproduction equipment has been installed in our Texas based manufacturingfacility and this investment has enabled us to reduce lead times significantlyand thereby meet customer delivery expectations. This factory manufactures thinfilm products and was previously operating on a seven day, twenty-four hourbasis. The investment is now complete and we anticipate increased business willresult. The overall market for component products softened during the latter months of2007; this was particularly pronounced in North America. Revenue from olderleaded resistive component products declined as customers substituted these forsurface mount component technologies. The marketplace for the products continuesto migrate to lower cost economies, particularly the Far East, and we track thistransfer to ensure that TT electronics' components remain specified in thecustomer's product. However, inevitably some business has been lost to localsuppliers. To counter this, our sales representation in China and India has beenincreased and where a financial justification can be made the group willtransfer the manufacture of resistive products to those territories. The outlook for specialist resistive products and microcircuit operations isstill healthy; although competition for the older product ranges remainsintense. Electronic manufacturing services 2007 2006 £million £million----------------------------------------- -------- -------Revenue 92.2 72.1Operating profit 4.1 1.3Capital employed 32.4 31.4----------------------------------------- -------- -------Return on capital employed 13% 4%----------------------------------------- -------- -------Number of employees 1,070 888----------------------------------------- -------- ------- TT electronics global electronic manufacturing services ('ems') operations arebased in the UK and USA with low cost manufacturing operations in China andMalaysia. These specialise in providing high quality manufacturing support forcustomers operating in the defence, aerospace, telecom and premium industrialmarkets. The group's capability extends to providing design for manufacturingand logistics support, and the group's strategy is to be an integral part of thecustomer's manufacturing solutions. The integration of TT Apsco Inc into the TT electronics ems sector is complete.New management is in place, the operation is now focussed on implementing modernmanufacturing methods and controls, standard costing has been installed and isgiving clear visibility of customer margins, and the sales force expanded. Theseimprovements, particularly to the sales force, are now beginning to bear fruitand the operation has started to win new business for introduction during 2008. The cost issues reported in the first half year results in connection with thetransfer of production from the UK based manufacturing site to Malaysia havebeen resolved and new management has been put in place. The ems operations' strategy is to capitalise on the group's global footprint,with the western manufacturing bases supporting lower volume, more specialistproduction and the low cost manufacturing capabilities targeted to thosecontracts with higher volumes. Revenue in this sector has increased by 28 per cent, primarily due to theacquisition of TT Apsco Inc in Cleveland, Ohio in November 2006. New contractscontinue to be won in all territories and future growth in revenue andprofitability is promising. Secure power and industrial 2007 2006 £million £million----------------------------------------- -------- -------Revenue 139.2 142.6Operating profit 13.6 12.2Capital employed 40.1 40.5----------------------------------------- -------- -------Return on capital employed 34% 30%----------------------------------------- -------- -------Number of employees 1,340 1,512----------------------------------------- -------- ------- TT electronics operates in the secure power market concentrating on the supplyof standby generators, uninterruptible power systems, electrical control panelupgrades and service. The Mexican factory has established a strong marketposition in its domestic market and has been very successful in expanding itsglobal sales operations to the export markets in South America and China. The remaining businesses in this sector are involved in the manufacture ofinterconnection systems, electrical fusegear, specialist compounds and finewire. The standby generator manufacturing operation based in Mexico City has deliveredanother year of robust performance. The factory site, purchased in late 2005,has received substantial investment and the building has been extended makingthe site more suitable for high volume equipment manufacture. In the UK, twosecure power operations have been combined into a single business on a singlesite under new management. The combined operations have beaten initial targetsand have a promising future. The interconnection systems operation has expanded from its original business ofconnector manufacture to become a higher value added supplier of a range ofinterconnection systems and complex electrical equipment to the defence andtraction markets. Manufacturing has been expanded into the USA and China andfurther growth opportunities in the USA and UK markets identified. Within the remaining operations, common themes are the outsourcing ofmanufacturing to third parties, the expansion of revenues in export markets andthe continued development of new product ranges to maximise future revenue. In the industrial markets serviced, growth from new products or markets is moredifficult to achieve. However, the businesses in this sector anticipatecontinued good performance. The sector's performance has steadily improved and operating profit is 10 percent of sales with an excellent return on capital employed. Discontinued operation The sale of the business of AEI Cables Limited was completed on 3 September2007. This business manufactured medium power electrical cables, typicallysuitable for domestic and industrial buildings. The marketplace was dominated bylarger manufacturing companies with an international coverage and, although theoperation was well run, the margins were not sufficient to compensate for thehigh risks in the business. The single most significant risk was exposure to thevolatility in the cost of copper metal. The business made an operating loss of£0.3 million in 2006 but this loss increased to £1.7 million in the first halfof 2007 on revenues of £60.9 million and £26.8 million respectively. The loss on sale of the discontinued operation including costs was £12.3 millionwhich is lower than that shown in the Interim Report. This is due to theconsideration being dependent on finalisation of the completion accounts and thevalue of assets sold on 3 September. The consideration for the stock at 30 June,included in the assets held for sale, was capped but by the date of the sale thestock levels had been reduced to below the level of the cap and the discountagainst assets sold was thereby reduced. Dividends and earnings per share The final dividend proposed is 6.36p per share, bringing the total dividend forthe year to 10.05p which is the same as last year. The dividend cover fromongoing operations for this year has improved to 1.5 times(2006: 1.4 times before exceptional gain). Basic earnings per share on continuing operations were 15.5p, an improvement of10 per cent over 2006 which were 14.1p excluding exceptional items. This isbased on earnings of £24.0 million (2006: £28.0 million less £8.8 millioncurtailment and £2.6 million of related tax). Taxation The overall rate of tax is 28 per cent (2006: 30 per cent). The additional cashcontributions to the pension funds made in the UK are largely an allowablededuction for tax and this, with the termination losses of the business of AEICables Limited, and losses brought forward gave rise to unrelieved tax lossescarried forward of £13.9 million. There are no other significant unrelievedlosses carried forward elsewhere in the group's non-UK operations. The reduction in the tax rates in Germany from approximately 39 per cent to 30 per cent will benefit the group with a reduced tax burden for 2008. Treasury and borrowings 2007 2006 £million £million----------------------------------------- -------- -------Net borrowings 75.0 71.0Cash generated from operations 42.9 32.1Capital expenditure 29.4 20.6----------------------------------------- -------- ------- Days Days----------------------------------------- -------- -------Debtor days outstanding 47 53Creditors days 46 43Inventory days 78 72----------------------------------------- -------- ------- The group's banking facilities, all of which are unsecured, are provided by a£70 million committed multi-currency facility which expires in April 2011, a twoyear $30 million committed facility which expires in December 2009 and overdraftfacilities totalling over £70 million provided by major clearing banks in the UK, Germany and other operating locations around the world. The major elements of change in the levels of borrowing have been: the increasein working capital of £5.1 million (2006: £27.8 million), a level of capitalexpenditure which has increased to £29.4 million (2006: £20.6 million) and payments to the pension funds of £15.7 million (2006:£7.0 million) less the proceeds of sale of the cables business of £10.8 million. It is expected that capital expenditure in 2008 will be closer to the depreciation charge and overall payments to the pension funds will reduce to £6 million from £18.5 million in 2007. The net interest charge for bank loans, overdrafts and cash of £4.2 million wascovered nine times by operating profit and at the end of December the group'snet gearing was 41 per cent (2006: 45 per cent). Exposure to risk and uncertainties Foreign currencyThe group's main exposures are to changes in the exchange rate of sterling tothe US dollar, the euro and the Chinese yuan. The policy of the group is tominimise, in a cost effective way, the effect of such exposures by hedging therisks. These hedges are achieved by matching foreign currency revenues with anequivalent foreign currency cost or by use of forward exchange contracts, swapsand other derivative instruments. Price changesThe group's single largest exposure to the risk of changes in the cost of rawmaterials was to the change in price of copper metal. Following the disposal ofthe electrical cables business this risk is substantially reduced. There are noother significant exposures to risks from changes in the cost of raw materials. Interest costThe group has maintained since 2006, a cap to the interest cost on about onethird of the total borrowings. Commercial and other risksThe group is exposed to risks of product liability, credit risk, reliance oncustomers' commitments and other usual commercial risks. The group has a wideportfolio of products and operates in a number of market sectors, the largest ofwhich is automotive, most importantly the German automotive OEMs. There areestablished control procedures in place to manage such risks, includingproduction quality control, management and financial control procedures andinsurance with reliable insurers, which are considered appropriate to the riskinvolved and marketplace in which the exposure arises. Pensions All of the significant pension schemes in the UK were merged with effect fromApril 2007 following which an increase in the cost of the provision of thepension was borne by the members who chose to remain in the scheme. As part ofthe agreement to these changes, the Company committed to a one-off additionalcash contribution of £5.5 million in 2007 and to a plan to eliminate the IAS19deficit, as re-measured each year, by 2014. Overall payments to the fundtotalled £18.5 million (2006: £11.4 million). These payments together with other changes in the valuation of assets andliabilities, return on assets and the interest cost of liabilities resulted inthe deficit being reduced from £72.6 million at December 2006 to £33.0 millionat June 2007 and £17.4 million at December 2007. The changes to the actuarial estimates were £37.8 million and £0.5 million forliabilities and assets respectively. The reduction in the level of liabilitieswas mainly the result of the discount rate applied to future liabilitiesincreasing from 5.3 per cent at December 2006 to 6.0 per cent at the end of2007. The mortality tables used in estimating the pension obligations are PA92 mediumcohort plus 2 years and are unchanged from those used in 2006. Outlook In the current economic climate, with the global credit crisis still evident,the effect of fluctuating exchange rates and the potential for either recessionor at best a slow down in our main markets, we remain cautious about 2008. Growth in the core sensors and electronic component sectors remains dependent onthe new products being developed and favourable market conditions in theautomotive and industrial sectors. In the ems and secure power and industrialsectors the outlook overall remains stable with the potential for growth. Further consolidation of the operations involved in sensors, electronic systemsand components particularly in the UK will be completed during 2008, as theseoperations transfer more of their manufacturing capacity to low labour costeconomies. The costs of this will impact the first half of 2008. The new product ranges and further transfers of manufacturing to low costregions will secure a brighter future for TT electronics in 2009 and beyond. Neil A Rodgers Roderick W WeaverChief Executive Finance Director14 March 2008 14 March 2008 Consolidated income statementfor the year ended 31 December 2007 Note 2007 2006 £million £million------------------------- ------ -------- --------Continuing operationsRevenue 2 544.9 539.4Cost of sales (437.0) (429.9)------------------------- ------ -------- --------Gross profit 107.9 109.5Distribution costs (36.0) (34.8)Administrative expenses (35.2) (39.2)Other operating income 1.0 1.0------------------------- ------ -------- --------Operating profit before exceptional item 3 37.7 36.5Exceptional item 4 - 8.8------------------------- ------ -------- --------Operating profit 37.7 45.3Finance income 5 18.3 14.0Finance costs 5 (22.7) (19.3)------------------------- ------ -------- --------Profit before taxation 3 33.3 40.0Taxation (9.3) (12.0)------------------------- ------ -------- --------Profit for the year from continuing operations 3 24.0 28.0------------------------- ------ -------- -------- Discontinued operationLoss for the year from discontinued operation 7 (11.8) -------------------------- ------ -------- --------Profit for the year attributable to shareholders 12.2 28.0------------------------- ------ -------- -------- Earnings per share 8 From continuing operations- basic 15.5p 18.1p- diluted 15.3p 17.9p From continuing and discontinued operations- basic 7.9p 18.1p- diluted 7.8p 17.9p------------------------- ------ -------- -------- Consolidated balance sheetat 31 December 2007 Note 2007 2006 £million £million------------------------------------ ------ -------- --------AssetsNon-current assetsProperty, plant and equipment 112.0 108.6Goodwill 52.3 53.1Other intangible assets 17.3 16.0Deferred tax assets 4.2 21.0------------------------------------ ------ -------- --------Total non-current assets 185.8 198.7------------------------------------ ------ -------- --------Current assetsInventories 91.0 99.8Trade and other receivables 95.1 104.6Financial derivatives - 0.6Cash and cash equivalents 7.6 9.5------------------------------------ ------ -------- --------Total current assets 193.7 214.5------------------------------------ ------ -------- --------Total assets 379.5 413.2------------------------------------ ------ -------- --------LiabilitiesCurrent liabilitiesShort-term borrowings 16.8 11.5Financial derivatives 0.7 -Trade and other payables 81.9 87.3Current tax payable - 1.3Provisions for liabilities 0.3 0.9------------------------------------ ------ -------- --------Total current liabilities 99.7 101.0------------------------------------ ------ -------- --------Non-current liabilitiesLong-term borrowings 65.8 69.0Deferred tax provision 6.0 5.4Pensions and other post employment benefits 11 17.4 72.6Provisions for liabilities 0.7 0.7Other non-current liabilities 7.6 7.5------------------------------------ ------ -------- --------Total non-current liabilities 97.5 155.2------------------------------------ ------ -------- --------Total liabilities 197.2 256.2------------------------------------ ------ -------- --------Net assets 182.3 157.0------------------------------------ ------ -------- --------EquityShare capital 38.7 38.7Share premium account 0.2 -Share options reserve 1.1 0.8Hedging and translation reserve (1.5) (6.1)Retained earnings 141.8 121.6Minority interests 2.0 2.0------------------------------------ ------ -------- --------Total equity 9 182.3 157.0------------------------------------ ------ -------- -------- Consolidated cash flow statementfor the year ended 31 December 2007 Note 2007 2006 £million £million------------------------------------ ------ -------- --------Operating activitiesProfit for the year 12.2 28.0Adjustments for:Finance costs 4.6 5.7Taxation 8.3 11.3Depreciation of property, plant and equipment 21.7 23.2Amortisation of intangible assets 9.6 9.1Share based payment expense 0.3 0.3Gain on disposal of property, plant and equipment (2.7) (2.0)Loss on disposal of business 12.3 -Pension curtailment gain (1.1) (8.8)Other non cash items (1.5) 0.1Additional payments to pension funds (15.7) (7.0)------------------------------------ ------ -------- --------Operating cash flow before movementsin working capital 48.0 59.9Decrease/(increase) in financial derivatives 1.3 (1.0)Increase in inventories (5.3) (0.8)Increase in receivables (1.3) (5.6)Decrease in payables (0.9) (14.0)Exchange differences 1.1 (6.4)------------------------------------ ------ -------- --------Cash generated from operations 42.9 32.1Tax paid (7.3) (7.0)------------------------------------ ------ -------- --------Net cash from operating activities 35.6 25.1------------------------------------ ------ -------- --------Cash flows from investing activities:Purchase of property, plant and equipment (29.4) (20.6)Proceeds from sale of property, plant and equipment and grants received 7.1 7.1Development expenditure and purchase of patents and licences (10.1) (8.6)Acquisition of subsidiary net of cash acquired - (14.7)Net cash proceeds from sale of business 10 10.8 ------------------------------------- ------ -------- --------Net cash used in investing activities (21.6) (36.8)------------------------------------ ------ -------- --------Cash flows from financing activities:Interest paid (net) (4.7) (3.8)Net changes in long-term borrowings and finance lease liabilities 0.3 10.0Issue of shares 0.2 -Dividends paid (15.6) (15.6)------------------------------------ ------ -------- --------Net cash used in financing activities (19.8) (9.4)------------------------------------ ------ -------- --------Net decrease in cash and cash equivalents (5.8) (21.1)Cash and cash equivalents at beginning of period 0.7 22.3Exchange difference (0.1) (0.5)------------------------------------ ------ -------- --------Cash and cash equivalents at end of period (5.2) 0.7------------------------------------ ------ -------- --------Cash and cash equivalents comprise:Cash and cash equivalents 7.6 9.5Bank overdrafts (12.8) (8.8)------------------------------------ ------ -------- -------- (5.2) 0.7------------------------------------ ------ -------- -------- Consolidated statement of recognised income and expensefor the year ended 31 December 2007 2007 2006 £million £million----------------------------------------- -------- -------Profit for the year 12.2 28.0Exchange differences on net foreign currency investments 4.8 (9.6)Hedging reserve (0.2) -Actuarial net gain on defined benefit pension schemes 38.3 3.2Deferred tax on actuarial gain (14.7) (1.0)----------------------------------------- -------- -------Total recognised income and expense for the yearattributable to shareholders 40.4 20.6----------------------------------------- -------- ------- Notes to the financial statements 1. Basis of accounting The consolidated financial statements have been prepared under InternationalFinancial Reporting Standards (IFRS) as adopted by the European Union. Thefinancial statements for 2007 have been prepared under accounting policiesconsistent with those used for 2006. The information set out below, which does not constitute full financialstatements within the meaning of S240 CA, 1985, is extracted from the auditedfinancial statements of the group for the year ended 31 December 2007 which: - were approved by the Directors on 14 March 2008 - carry an unqualified audit report, which did not contain statements under S237 CA, 1985 - will be posted to shareholders and available to the public in April 2008 - will be filed with the Registrar of Companies following the Annual General Meeting on 14 May 2008 2. Revenue On 3 September 2007 the group disposed of the business and net assets of AEICables Limited. This transaction meets the criteria of IFRS5 requiring it to beclassified as a discontinued operation. Following this disposal the remainingpower transmission businesses no longer fulfil the requirements of a segment andare now reported with the power systems businesses as the Secure power andindustrial segment. By sector 2007 2006 £million £million-------------------------------------- -------- -------- Sensors and electronic systems 182.3 184.8- Electronic components 131.2 139.9- Electronic manufacturing services 92.2 72.1- Secure power and industrial 139.2 142.6-------------------------------------- -------- -------Total - continuing operations 544.9 539.4-------------------------------------- -------- ------- By destination 2007 2006 £million £million-------------------------------------- -------- -------United Kingdom 111.2 115.7Rest of Europe 201.1 200.9North America 149.5 145.6Rest of the World 83.1 77.2-------------------------------------- -------- -------Total - continuing operations 544.9 539.4-------------------------------------- -------- ------- 3. Profit by sector 2007 2006 £million £million------------------------------------- -------- --------- Sensors and electronic systems 10.0 11.6- Electronic components 10.0 11.4- Electronic manufacturing services 4.1 1.3- Secure power and industrial 13.6 12.2------------------------------------- -------- --------Operating profit before exceptional item 37.7 36.5Exceptional operating item (note 4) - 8.8------------------------------------- -------- --------Operating profit 37.7 45.3Finance income 18.3 14.0Finance costs (22.7) (19.3)------------------------------------- -------- --------Profit before tax 33.3 40.0Taxation (9.3) (12.0)------------------------------------- -------- --------Profit for the year from continuing operations 24.0 28.0------------------------------------- -------- -------- 4. Exceptional item 2007 2006 £million £million------------------------------------- -------- --------Curtailment of pension scheme benefits - 8.8------------------------------------- -------- -------- The pensionable salaries of members of the UK defined benefit schemes are frozenfor three years. The consequent reduction in the liabilities of the schemes wasrecognised in the actuarial valuations of the schemes at 31 December 2006 andunder the requirements of IAS19 is reported in operating profit. There were no exceptional items in 2007. 5. Finance costs - net 2007 2006 £million £million------------------------------------- -------- --------Interest receivable 0.5 0.8Expected return on pension scheme assets 17.8 13.2------------------------------------- -------- --------Finance income 18.3 14.0------------------------------------- -------- --------Interest on bank overdrafts and loans 4.7 4.0Interest on finance leases 0.3 0.3Unwinding of the discount on pension scheme liabilities 17.7 15.0------------------------------------- -------- --------Finance costs 22.7 19.3------------------------------------- -------- --------Finance costs - net 4.4 5.3------------------------------------- -------- -------- The loss for the discontinued operation included net finance costs of £0.2million (2006 : £0.4 million). 6. Dividends The following dividends have been paid in the year: 2007 2007 2006 2006 pence per £million pence per £million share share----------------------- --------- -------- -------- --------Final dividend for prior year 6.36 9.9 6.36 9.9Interim dividend forcurrent year 3.69 5.7 3.69 5.7----------------------- --------- -------- -------- -------- 10.05 15.6 10.05 15.6----------------------- --------- -------- -------- -------- The Directors propose that a final dividend of 6.36p will be paid on 23 May 2008to shareholders on the register on 16 May 2008. The ex-dividend date is 14 May2008. This dividend is subject to the approval of shareholders at the AnnualGeneral Meeting and has not been included as a liability in these accounts. Thetotal estimated cost of the final dividend is £9.9 million. 7. Discontinued operation On 3 September 2007 the group sold the business and net trading assets of AEICables Limited which completed the group's exit from the cables business. Theamount included in the income statement for this disposal comprises: 2007 2006 £million £million------------------------------------- -------- --------Loss after taxation before curtailment gain (0.6) -Curtailment of pension scheme benefits 1.1 -Loss on disposal of business and assets (12.3) -------------------------------------- -------- -------- (11.8) -------------------------------------- -------- -------- 8. Earnings per share From continuing operations: 2007 2006 pence pence per share per share------------------------------------- -------- --------Basic 15.5 18.1Diluted 15.3 17.9------------------------------------- -------- -------- Earnings per share has been calculated by dividing the profit attributable toshareholders by the weighted average number of shares in issue during the year.The numbers used in calculating basic and fully diluted earnings per share arereconciled below: 2007 2006 £million £million------------------------------------- -------- --------Profit for the year attributable to shareholders 12.2 28.0Add loss for the year from discontinued operation 11.8 -------------------------------------- -------- --------Earnings from continuing operations 24.0 28.0------------------------------------- -------- -------- Weighted average number of shares in issue 2007 2006 million million------------------------------------- -------- --------Basic 154.9 154.8Adjustment for share options 1.5 1.4------------------------------------- -------- --------Diluted 156.4 156.2------------------------------------- -------- -------- Earnings per share on continuing operations before exceptional items of 15.5p(2006 : 14.1p) is based on the profit for the year of £24.0 million (2006 :£28.0 million) adjusted for exceptional items of £nil million (2006 : £8.8million) less the associated taxation of £nil million (2006 : £2.6 million). From continuing and discontinued operations: 2007 2006 pence pence per share per share------------------------------------- -------- --------Basic 7.9 18.1Diluted 7.8 17.9------------------------------------- -------- -------- ------------------------------------- -------- -------- 2007 2006 £million £million------------------------------------- -------- --------Profit for the year attributable to shareholders:Earnings basic and diluted 12.2 28.0------------------------------------- -------- -------- The denominators are the same as shown above for both basic and diluted earningsper share. From discontinued operation: 2007 2006 pence pence per share per share------------------------------------- -------- --------Basic - loss (7.6) -Diluted - loss (7.5) -------------------------------------- -------- -------- ------------------------------------- -------- -------- 2007 2006 £million £million------------------------------------- -------- --------Loss for the year from discontinued operation (11.8) -------------------------------------- -------- -------- The denominators are the same as shown above for both basic and diluted loss pershare. 9. Shareholders' equity £million------------------------------------- --------------At 1 January 2007 157.0Profit for the year 12.2Exchange differences on net foreign currency investments 4.8Actuarial net gain on defined benefit pension schemes 38.3Deferred tax on actuarial gain (14.7)Dividends paid (15.6)Share based payments 0.3Premium on share issues 0.2Cash flow hedges (0.2)------------------------------------ --------------At 31 December 2007 182.3------------------------------------ -------------- 10. Disposal of AEI Cables business On 3 September 2007 the group disposed of the AEI Cables business and nettrading assets. (i) The assets sold and sales consideration were: 2007 £million------------------------------------- --------------Net assets sold 24.0------------------------------------- --------------Cash consideration 11.3Cash costs (0.5)------------------------------------ --------------Cash inflow 10.8Loan note repayable in one year 0.9------------------------------------ --------------Net consideration 11.7------------------------------------ --------------Loss on disposal (12.3)------------------------------------ -------------- (ii) The loss after taxation for the period to 3 September 2007 was: 2007 2006 £million £million------------------------------------- -------- --------Revenue 37.6 60.9------------------------------------- -------- --------Operating loss (1.4) (0.3)Finance costs (net) (0.2) (0.4)------------------------------------- -------- --------Loss before taxation (1.6) (0.7)Taxation 1.0 0.7------------------------------------- -------- --------Loss for the period (0.6) -------------------------------------- -------- --------Curtailment gain on pension fund 1.1 -------------------------------------- -------- -------- 11. Defined benefit pension schemes The group operates defined benefit pension schemes mainly in the UK. The mostrecent actuarial valuations have been updated by the actuaries to assess theassets and liabilities of the schemes at 31 December 2007. The principal assumptions used for the purpose of the actuarial valuations wereas follows: 2007 2006 % %----------------------------- ------------- ----------Discount rate 6.0 5.3Inflation rate 3.2 2.9Increases to pensions in payment 2.5-3.2 2.5-2.9Salary increases for 3 years - -Salary increases thereafter 3.7 3.4----------------------------- ------------- ---------- The expected percentage long-term rates of return on the main asset classes, netof expenses, set by management having regard to actuarial advice and relevantindices were: 2007 2007 2006 Second half First half-------------------------- ---------- --------- ----------Equities 7.9 7.0 6.8Bonds 5.5 4.5 4.3Gilts and cash 4.9 4.0 3.6-------------------------- ---------- --------- ---------- The mortality tables applied by the actuaries at 31 December 2007 were PA92 MC +two years. The amounts recognised on the group balance sheet are: 2007 2006 £million £million----------------------------- ------------- ----------Equities 182.0 187.8Bonds 12.4 10.9Gilts and cash 103.8 73.4----------------------------- ------------- ----------Fair value of assets 298.2 272.1Present value of funded obligation (315.6) (344.7)----------------------------- ------------- ----------Net liability recognised on theConsolidated balance sheet (17.4) (72.6)----------------------------- ------------- ---------- Changes in the present value of the defined benefit obligation are: 2007 2006 £million £million----------------------------- ------------- ----------Opening defined benefit obligation 344.7 335.9Current service cost 2.8 4.4Interest on obligation 18.4 16.4Scheme participant contributions 1.5 1.5Curtailment gain (1.1) (8.8)Change in actuarial estimates and assumptions (37.8) 6.2Exchange differences - (0.8)Benefits paid (12.9) (10.1)----------------------------- ------------- ----------Closing defined benefit obligation 315.6 344.7----------------------------- ------------- ---------- Changes in the fair value of scheme assets are: 2007 2006 £million £million----------------------------- ------------- ----------Opening fair value of scheme assets 272.1 245.7Expected return on scheme assets 18.5 14.5Excess of actual over expected returns 0.5 9.4Contributions by employer 18.5 11.4Contributions by employees 1.5 1.5Exchange differences - (0.3)Benefits paid (12.9) (10.1)----------------------------- ------------- ----------Closing fair value of scheme assets 298.2 272.1----------------------------- ------------- ---------- The experience adjustments arising on the schemes' assets and liabilities arereported in the Consolidated statement of recognised income and expense and areas follows: 2007 2006 £million £million----------------------------- ------------- ----------Experience adjustments on schemes' liabilities 37.8 (6.2)----------------------------- ------------- ----------Experience adjustments on schemes' assets 0.5 9.4----------------------------- ------------- ---------- ------------------------------------------------ Annual General Meeting The Company proposes to adopt new Articles of Association at its Annual GeneralMeeting to be held on 14 May 2008 primarily to take account of changes broughtabout by the Companies Act 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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